Freeport-McMoRan 2012 Annual Report Download - page 47

45
MANAGEMENT’S DISCUSSION AND ANALYSIS
2012 compared with 2011. Consolidated molybdenum sales
volumes increased to 83 million pounds in 2012, compared with
79 million pounds for 2011 primarily reflecting the incremental
production from the Climax molybdenum mine that began
commercial operations in May 2012. For the year 2013, we expect
molybdenum sales volumes to approximate 90 million pounds,
of which approximately 40 million pounds represent production
from our North and South America copper mines.
2011 compared with 2010. Consolidated molybdenum sales
volumes increased to 79 million pounds in 2011, compared with
67 million pounds in 2010, primarily reflecting improved demand.
Unit Net Cash Costs. Unit net cash costs per pound of
molybdenum is a measure intended to provide investors with
information about the cash-generating capacity of our mining
operations expressed on a basis relating to the primary metal
product for our respective operations. We use this measure for
the same purpose and for monitoring operating performance
by our mining operations. This information differs from measures
of performance determined in accordance with U.S. GAAP and
should not be considered in isolation or as a substitute for
measures of performance determined in accordance with U.S.
GAAP. This measure is presented by other metals mining
companies, although our measure may not be comparable to
similarly titled measures reported by other companies.
Gross Profit per Pound of Molybdenum. The following table
summarizes the unit net cash costs and gross profit per pound of
molybdenum at our Henderson molybdenum mine for the years
ended December 31. Refer to “Product Revenues and Production
Costs” for a reconciliation of unit net cash costs per pound to
production and delivery costs applicable to sales reported in our
consolidated financial statements.
2012 2011 2010
Revenues, excluding adjustments $ 14. 27 $ 16.4 2 $ 15 .89
Site production and delivery,
before net noncash and other costs
shown below 6.19 5.46 4.82
Treatment charges and other 0.88 0.88 1.08
Unit net cash costs 7.07 6.34 5.90
Depreciation, depletion and amortization 0.97 0.96 0.83
Noncash and other costs, net 0.24 0.04 0.03
Total unit costs 8.28 7.34 6.76
Gross profit per pound
a
$ 5.99 $ 9.08 $ 9.13
Molybdenum sales
(millions of recoverable pounds)
b
34 38 40
a. Gross profit reflects sales of Henderson production to our molybdenum sales company
based on volumes produced at market-based pricing. On a consolidated basis, the
Molybdenum division includes profits on sales as they are made to third parties and
realizations based on actual contract terms. As a result, the actual gross profit realized
will differ from the amounts reported in this table.
b. Reflects molybdenum produced by the Henderson molybdenum mine.
Henderson’s unit net cash costs were $7.07 per pound of
molybdenum in 2012, $6.34 per pound in 2011 and $5.90 per pound
in 2010. Henderson's increased unit net cash costs year over
year, primarily reflected lower production volumes and higher
input costs.
Assuming achievement of current sales volume and cost
estimates, we estimate unit net cash costs for primary
molybdenum mines to average $7.00 per pound of molybdenum
in 2013 (reflecting approximately $7.50 per pound for Henderson
and $6.50 per pound for Climax).
Atlantic Copper Smelting & Refining
Atlantic Copper, our wholly owned subsidiary located in Spain,
smelts and refines copper concentrates and markets refined
copper and precious metals in slimes. During 2012, Atlantic
Copper purchased approximately 31 percent of its concentrate
requirements from our South America mining operations,
approximately 16 percent from our North America copper mines
and approximately 10 percent from our Indonesia mining
operations. Through this form of downstream integration, we
are assured placement of a significant portion of our
concentrate production.
Smelting and refining charges consist of a base rate and, in
certain contracts, price participation based on copper prices.
Treatment charges for smelting and refining copper concentrates
represent a cost to our mining operations, and income to Atlantic
Copper and PT Smelting. Thus, higher treatment and refining
charges benefit our smelter operations and adversely affect our
mining operations. Our North America copper mines are less
significantly affected by changes in treatment and refining
charges because these operations are largely integrated with our
wholly owned smelter located in Miami, Arizona.
In May 2011, Atlantic Copper successfully completed a
scheduled 26-day maintenance turnaround, which had a $30 million
impact on production and delivery costs (refer to Note 17
for Atlantic Copper's operating results). Atlantic Copper's major
maintenance turnarounds (which take approximately 50 days
to complete) typically occur approximately every eight years, with
short-term maintenance turnarounds in the interim. Atlantic
Copper is planning a major maintenance turnaround in the second
half of 2013.
We defer recognizing profits on sales from our mining
operations to Atlantic Copper and on 25 percent of Indonesia
mining sales to PT Smelting until final sales to third parties
occur. Our net deferred profits on our inventories at Atlantic
Copper and PT Smelting to be recognized in future periods’